Applying for Credit Unit 3

 Most lenders build their lending polices around the “five C’s of credit”  Character – Will you repay the loan?  Capacity – CAN you repay the loan?  Capital – What are you assets and net worth?  Collateral – What if you don’t pay?  Conditions – What if your job is insecure? Why does a lender need to know about your credit history to extend credit ?

Credit Score

 Credit score is a snapshot of the contents of your credit report at the time it is calculated  First step is to review your credit report to ensure accuracy  Maintain a savings/checking account  Pay bills on time  Lower your balances  Use credit WISELY How can I improve my credit score?

 The “Equal Credit Opportunity Act” (ECOA) gives you the right to the reasons  If it’s the result of information from the credit bureau, you are entitled to the information that was provided  The bureau cannot charge a fee as long as you request a copy of your credit report within 60 days What if your application is denied?

 When applying for a loan or credit card, the lender will review your credit history closely  Your credit records are collected and maintained by credit bureau’s  Lenders rely heavily on this information to determine whether or not to extend credit to you  Errors should be taken care of immediately by contacting 1 of the 3 main bureaus  Experian  Trans Union  Equifax Why is your credit report important?

 Only to properly identified persons  Response to a court order  Credit transaction  Response to a job application  Response to a rental application  If someone who is not authorized just REQUESTS a credit report and is not entitled to it can result in a fine, imprisonment or both Who can obtain a credit report?

 If asked – THINK TWICE!  Cosigning means that you agree to be responsible for the loan payments if the other person fails to make them  You are taking a risk that the lender would not take  If the person does not pay, YOU HAVE TO! Cosigning a loan Why would someone ask a friend or relative to cosign a loan?

 Personal information  Name, address, previous address, SS#, date of birth  Employment information  Name of employer, how long, previous employer  Financial information  Own or rent, bank accounts, loans, credit cards  References  Relatives not living with you, professional What information is needed to apply for credit/loan?

 When you hit 21 years old, they start coming in the mail  Be smart  Compare interest rates  Annual fees and other fees (late payment, over the limit)  Decide which best suits your needs  SHRED any others that you discard Credit Card Offers

 “Your total borrowing should not exceed 20% of your yearly take-home pay, and you should not take on monthly credit payments (excluding mortgage payments) that total more than 10% of your monthly take-home pay”  Example:  $45,000/year * 20% = $______________________  $3,750/month * 10% = $______________________ 20/10 Rule